Introduction: Context and Purpose
Nepal’s transition to a federal republic, initiated by the promulgation of the Constitution in 2015, marked a fundamental shift in the country’s administrative and economic governance. The creation of seven provinces—Koshi, Madhes, Bagmati, Gandaki, Lumbini, Karnali, and Sudurpaschim—has not only decentralized political authority but also introduced a new framework for economic planning and regional development. This federal restructuring was designed to promote balanced growth, empower local governments, and reduce the historical concentration of resources and power in Kathmandu and a few urban centers.
In this context, disaggregated economic data at the provincial level has become critical for formulating informed policy, measuring development outcomes, and understanding regional disparities. Gross Value Added (GVA), a core economic indicator, provides a sector-by-sector measure of the economic output generated within each province before taxes and subsidies, making it a purer reflection of local production activities than GDP, which aggregates national-level taxes.
According to data released by the National Statistics Office on Monday, the province-wise economic performance from fiscal year 2075/76 (2018/19) to fiscal year 2081/82 (2024/25) has been revealed. This data not only reveals the overall trajectory of economic growth across provinces but also highlights sectoral contributions, structural transformations, and interprovincial economic dynamics during Nepal’s early federal era. Understanding these trends is crucial for policymakers, investors, and development practitioners aiming to craft region-specific strategies that align with Nepal’s broader goals of sustainable and inclusive growth.
Agriculture, Forestry, and Fishing: Still the Backbone of Provincial Economies
Agriculture remains the backbone of Nepal’s economy, employing a large share of the population and underpinning rural livelihoods, especially in provinces with fertile plains and substantial arable land. The GVA data vividly illustrates the continued dominance of the agriculture, forestry, and fishing sector, particularly in provinces such as Koshi, Madhes, and Lumbini.
In fiscal year 2075/76, Koshi Province’s agricultural sector generated Rs. 177,857 million, growing steadily to an estimated Rs. 291,194 million by 2081/82—a remarkable 64% increase over seven years.
This robust growth is underpinned by favorable climatic conditions, fertile Terai plains, and progressive adoption of improved irrigation schemes and mechanized farming. Investments in agricultural extension services and increased use of hybrid seeds and fertilizers have also contributed, allowing farmers to improve yields despite challenges such as land fragmentation.
Madhes Province, with its extensive flatlands and proximity to the Indian border, also boasts a strong agricultural economy. However, its growth rate, moving from Rs. 199,139 million in 2075/76 to Rs. 280,386 million by 2081/82, has been somewhat slower compared to Koshi. This relative lag can be attributed to several structural issues: increasing land fragmentation due to population pressure, waterlogging and flooding in certain low-lying areas, and continued reliance on traditional farming practices that limit productivity gains.
Lumbini Province, endowed with fertile soil and emerging agro-industrial corridors around Butwal and Bhairahawa, experienced steady growth as well—from Rs. 213,368 million to Rs. 295,612 million. The establishment of agro-processing facilities and improved rural infrastructure have been significant drivers.
Conversely, Karnali and Sudurpaschim provinces remain challenged by difficult mountainous terrain, sparse road networks, and limited irrigation infrastructure. Karnali’s agricultural GVA increased modestly from Rs. 90,110 million to Rs. 130,724 million over the period, reflecting both constrained land availability and out-migration of labor. Sudurpaschim showed a similar pattern, with growth from Rs. 104,361 million to Rs. 145,043 million. These figures underscore persistent developmental gaps, emphasizing the need for targeted investment in high-value crops, irrigation expansion, and rural connectivity.
While agriculture continues to dominate the economic landscape in many provinces, its share of total GVA is gradually diminishing, particularly in urbanized and industrializing regions like Bagmati. This is consistent with broader economic transformation patterns observed in developing countries, where growth shifts progressively from agriculture to manufacturing and services.
Manufacturing: Industrial Pockets and Stark Disparities
Manufacturing GVA data provides an insightful lens into Nepal’s uneven industrial development across provinces. Bagmati Province, home to Kathmandu and its satellite towns, stands as the industrial powerhouse.
Its manufacturing GVA increased from Rs. 221,156 million in 2075/76 to Rs. 349,460 million by 2081/82, highlighting both the expansion of existing industries and the emergence of new industrial clusters.
Key industrial hubs include Hetauda’s heavy industries, Bhaktapur’s traditional crafts and factories, and the growing light manufacturing units in eastern Kathmandu Valley.
Koshi Province, with Biratnagar as a prominent industrial center and Dharan’s growing manufacturing sector, followed with growth from Rs. 77,569 million to Rs. 127,207 million. Koshi benefits from proximity to Indian markets, improving transport corridors, and established industrial estates, which have attracted both domestic and cross-border investment.
Lumbini Province, boosted by the Butwal-Bhairahawa industrial corridor and relative proximity to trade routes, moved from Rs. 92,297 million to Rs. 142,921 million in manufacturing GVA. The expansion of agro-processing, textile, and construction materials industries are key contributors.
In sharp contrast, Karnali and Sudurpaschim provinces remain heavily under-industrialized. Karnali’s manufacturing GVA started at a mere Rs. 5,197 million and increased to just Rs. 8,865 million by 2081/82, while Sudurpaschim’s figures remained similarly low. These low outputs reflect deep structural constraints—insufficient road and power infrastructure, lack of skilled labor, minimal capital inflows, and geographic remoteness.
The impact of the COVID-19 pandemic was acutely felt in the manufacturing sector. Between fiscal years 2076/77 and 2077/78, many provinces, especially Bagmati and Koshi, experienced a slowdown or stagnation in growth. Factory closures, disrupted supply chains, and diminished consumer demand contributed to this dip. Encouragingly, by 2080/81, data shows a significant post-pandemic rebound as businesses adapted, supply chains normalized, and government stimulus measures took effect.
Electricity, Gas, Steam, and Air Conditioning Supply: Hydropower at the Forefront
The electricity sector, primarily driven by hydropower generation, stands out as a dynamic growth area for Nepal’s provincial economies. The shift toward renewable energy development aligns with national priorities to harness Nepal’s vast water resources and reduce energy imports.
Gandaki Province has emerged as a leader, with electricity-related GVA more than doubling from Rs. 21,920 million in 2075/76 to Rs. 53,720 million in 2081/82. Major hydropower projects such as Upper Modi, Middle Modi, and Kaligandaki have played central roles. These projects have stimulated local employment, improved rural electrification, and contributed to export capacity.
Karnali Province, despite its difficult geography, has made notable progress with its hydropower potential. Starting from a low base of Rs. 4,639 million, its electricity GVA climbed to Rs. 16,616 million. However, constraints related to grid transmission and infrastructure investment have limited the province’s ability to fully capitalize on its resources.
Bagmati Province, benefiting from major installations like the Upper Tamakoshi plant and several mid-sized hydropower stations, has also shown strong growth in the sector, from Rs. 12,482 million to Rs. 40,631 million.
The province’s relative industrialization and urbanization have increased electricity demand, further reinforcing investment incentives.
Other provinces, including Madhes and Sudurpaschim, report modest gains, reflecting ongoing challenges in project development and limited resource endowments.
This surge in electricity generation capacity underscores Nepal’s ambition to transition from energy scarcity to surplus status, targeting electricity export primarily to India and the broader South Asian region. However, achieving this potential hinges on substantial investments in transmission infrastructure, cross-border grid interconnections, and regulatory reforms.
Water Supply, Sewerage, and Waste Management: Progress in Urban Infrastructure
While accounting for a smaller share of provincial GVA, the water supply, sewerage, and waste management sector reflects important advances in urban governance and public health service delivery.
Bagmati Province leads the way, with sectoral GVA increasing from Rs. 4,881 million in 2075/76 to Rs. 9,557 million in 2081/82. This growth mirrors Kathmandu’s substantial investments in sewerage infrastructure, water treatment plants, and waste management systems, driven by growing urban populations and increasing environmental awareness.
Koshi and Madhes provinces also recorded growth, each surpassing Rs. 5,000 million in GVA by 2081/82, reflecting expanding urban centers such as Biratnagar and Janakpur. Efforts to improve sanitation and potable water supply have been supported by provincial governments in collaboration with federal programs and international donors.
Conversely, Karnali and Sudurpaschim show slower growth in this sector, highlighting persistent underinvestment in critical sanitation and waste management infrastructure. These deficiencies contribute to health disparities and environmental degradation, particularly in rural and peri-urban areas.
Nonetheless, gradual increases in provincial budget allocations and rising community participation suggest growing prioritization of basic urban services.
Mining and Quarrying: Construction-Driven Growth and Environmental Concerns
The mining and quarrying sector’s GVA closely tracks construction activity, especially road-building, housing development, and urban expansion. It is thus a proxy for infrastructure development momentum in each province.
Bagmati Province again leads, with mining GVA rising from Rs. 10,116 million to Rs. 19,911 million, propelled by Kathmandu Valley’s booming real estate market and public infrastructure projects. Koshi and Lumbini provinces also reported solid growth due to their riverine sand and gravel extraction activities, crucial inputs for construction.
Koshi’s mining GVA grew from Rs. 6,878 million to Rs. 11,987 million, supported by infrastructure development in urban centers and border towns.
In contrast, Karnali and Sudurpaschim lag, either due to limited commercial mining operations or underreporting. The relatively low figures indicate that these provinces are yet to tap fully into mineral and construction resource potentials.
However, the mining sector’s rapid expansion raises serious environmental concerns, particularly the degradation of river ecosystems, loss of agricultural land, and increased sedimentation. Without effective regulation and sustainable practices, the sector’s growth could undermine long-term ecological health and local livelihoods.
Overall Interprovincial Patterns and Observations
Bagmati Province: Nepal’s Economic Nucleus
Bagmati emerges unambiguously as Nepal’s economic heartland. It boasts the highest GVA across nearly all sectors, thanks to concentration of infrastructure, capital, human resources, and political power. The province’s economy is diversified, spanning manufacturing, services, finance, real estate, and hydropower. However, rapid urbanization also creates challenges—urban sprawl, traffic congestion, pollution, housing shortages, and socioeconomic inequality—which require integrated urban planning.
Koshi and Lumbini: Fast Followers with Industrial and Agricultural Strength
Both Koshi and Lumbini provinces show strong growth trajectories, bolstered by fertile agricultural land, growing industrial zones, and improving trade connectivity. Their strategic location along major transport corridors and international borders provides competitive advantages. For sustained progress, they must invest in innovation, energy infrastructure, skill development, and environmental management.
Madhes: Agricultural Powerhouse but Industrially Underdeveloped
Madhes Province remains an agricultural stronghold but lags in industrial and energy sector development. Political instability, weak governance, land management challenges, and inadequate infrastructure investment constrain its economic diversification. Focused reforms and investment are essential to unlock its full potential.
Gandaki and Karnali: Natural Resource-Driven Growth
Gandaki’s economy benefits from hydropower and tourism, with Pokhara and the Annapurna region as key assets. Karnali, though economically less developed, shows early signs of growth in hydropower and agriculture. Both provinces’ future depends on enhancing infrastructure, improving market access, and leveraging natural resources sustainably.
Sudurpaschim: Behind but Catching Up
Sudurpaschim remains the most economically marginalized province, with the lowest GVA figures across sectors. Yet, its strategic border position with India, ongoing improvements in road and electricity access, and nascent hydropower projects indicate a foundation for future growth if supported by effective policies and investment.
Impact of Shocks and Recovery Path
COVID-19 Pandemic
The global COVID-19 pandemic severely disrupted Nepal’s economy in 2076/77 and 2077/78.
Lockdowns, factory shutdowns, and restrictions on movement caused pronounced slowdowns, especially in manufacturing, transportation, hospitality, and trade sectors.
Provinces like Bagmati and Koshi, heavily dependent on industry and services, were most affected. The GVA data during these years captures this contraction or stagnation, highlighting vulnerabilities in Nepal’s economic structure.
Post-Pandemic Recovery
From 2078/79 onward, a recovery trend is evident, accelerated by government stimulus packages, adaptive private sector responses, and easing of restrictions. By the revised estimates of 2080/81 and projections for 2081/82, provincial economies show renewed growth, particularly in hydropower, manufacturing, and urban services, reflecting resilience and structural adjustment.
Federalism’s Emerging Economic Footprint
Seven years into Nepal’s federal experiment, provincial economic data reveals emerging patterns of diversification, specialization, and disparity. The GVA figures show that while structural challenges—such as infrastructure deficits, uneven investment, and limited fiscal autonomy—remain, provinces are carving distinct development trajectories.
For Nepal’s federal system to fulfill its promise of balanced and inclusive growth, policymakers at both provincial and federal levels must address disparities, invest in infrastructure and human capital, promote sustainable resource management, and create an enabling environment for innovation and private sector participation.
These GVA-based trends serve not only as a reflection of past progress but as a strategic compass for the future—guiding resource allocation, development planning, and governance reforms that will shape Nepal’s socio-economic landscape in the years ahead.
